No Country In America's Position Ever Made Things Better By Cutting Spending

Arjun Jayadev and Mike Konczal of the Roosevelt Institute have targeted the research of economists Alberto F. Alesina and Silvia Ardagna and claim that a recession and or economic slowdown is no time to make cuts to the public sector.

If you remember, previously Alesina and Ardagna had released an economic paper suggesting running austerity budgets did not mean growth would slow and that, in fact, in some cases it increased pace.

But Jayadev and Konczal have pointed out that their analysis was lacking and ignores scenarios where cuts are made during downturns.

In other words, their examples of successful consolidation were, on average, growing strongly the year before the year of adjustment. This is, of course, unlike the U.S. case today because the country was in recession last year.

And the two conclude that, leaving out the faulty examples of Alberto F. Alesina and Silvia Ardagna, cuts would be terrible news for the U.S:

There may be situations in which consolidation does indeed result in better outcomes, but those do not apply to the U.S. at the moment. It is not clear that immediate fiscal consolidation will do much to alleviate that worry. Without robust growth, there is little hope of the debt-to-GDP ratio falling.

So what's clear is what was assumed before. Public sector cuts will only serve to make the situation worse during a downturn (example Greece), and are best made during "the good times."